Thursday, August 27, 2009

Peak-Oil and Biofuels: Both Running On Empty

Michael Lynch, NY Times -- In the end, perhaps the most misleading claim of the peak-oil advocates is that the earth was endowed with only 2 trillion barrels of “recoverable” oil. Actually, the consensus among geologists is that there are some 10 trillion barrels out there. A century ago, only 10% of it was considered recoverable, but improvements in technology should allow us to recover some 35% — another 2.5 trillion barrels — in an economically viable way. And this doesn’t even include such potential sources as tar sands, which in time we may be able to efficiently tap.

Oil remains abundant, and the price will likely come down closer to the historical level of $30 a barrel as new supplies come forward in the deep waters off West Africa and Latin America, in East Africa, and perhaps in the Bakken oil shale fields of Montana and North Dakota. But that may not keep the Chicken Littles from convincing policymakers in Washington and elsewhere that oil, being finite, must increase in price.

This is not to say that we shouldn’t keep looking for other cost-effective, low-pollution energy sources — why not broaden our options? But we can’t let the false threat of disappearing oil lead the government to throw money away on harebrained renewable energy schemes (see WSJ article below) or impose unnecessary and expensive conservation measures on a public already struggling through tough economic times.

Wall Street Journal--The biofuels revolution that promised to reduce America's dependence on foreign oil is fizzling out. Two-thirds of U.S. biodiesel production capacity now sits unused, reports the National Biodiesel Board. Biodiesel, a crucial part of government efforts to develop alternative fuels for trucks and factories, has been hit hard by the recession and falling oil prices.

The global credit crisis, a glut of capacity, lower oil prices and delayed government rules changes on fuel mixes are threatening the viability of two of the three main biofuel sectors -- biodiesel and next-generation fuels derived from feedstocks other than food. Ethanol, the largest biofuel sector, is also in financial trouble, although longstanding government support will likely protect it.

Peak oil is one of the most haired brained conspiracy theories to ever come down the pike. Even if it's true, it's NOT TRUE. We will NEVER run out of oil nor will we suffer terribly for want. Here's why:

As the supply of oil decreases relative to supply, its price rises. As oil prices rise, the relative cost of alternatives (which already exist) decrease. Higher prices cause substitution to cheaper alternatives, conservation and efficiency, and subsidies for more exploration and research. The 'tougher' oil to get will become cost-effective to get.

Peak oil 'theory' could be applied to gold, copper, wheat, doctors - nearly anything which is vital and scarce. But we never hear about 'peak bread' or 'peak brain surgeons'. It's a theory with an agenda - to attack the lifeblood of production: energy. It's a Malthusian nightmare which forgot that Malthus was wrong.

We face a real threat of 'peak salmon' - destroying a species for which we would prefer not to resort to substitutes. We have no particular love for how we get our energy - only that we get it cheaply. Some resources, once gone, can never be replaced.

Do you think we can increase production forever? That's all Peak Oil says.

Peak Oil says nothing about running out of oil, nor does it say that alternative energy technology can't replace oil.

Peak Oil, in fact, agrees that due to economics we will never run out of oil, and that replacements for it will be developed.

Peak Oil simply says that there is some level of global production, probably around 100 million barrels per day, that becomes almost impossible to increase. New finds and better technology merely replace declining daily production from the major fields (most or all world majors are slowly declining in production).

We might be able to keep up 90-100 million barrels per day for decades after that, but the idea of Peak Oil is: that's as quickly as we're ever going to be able to suck it out of the ground.

It says nothing about price, so maybe that should be an asterik "for prices under $200bbl, we will never produce more that 100 million bbls per day".

If you don't think that $200bbl is "suffering for want", when modern society has been built on $20 bbl oil, then I'm not sure there's much left for us to discuss.

But the IEA does say that global conventional oil production will peak around 2020, and including unconventionals global total oil production will peak around 2030.

"Peak hysterics" meanwhile crude oil rolls past $100 because new production cant keep up with demand and stubbornly stays above $70 during a brutal recession. Price is an indicator, pay attention to what the markets are telling you.

No, Steve, that's not all that Peak Oil says. It is a cult which believes in war, death and destruction as our major source of energy falters in production as demand increases. It is exactly the same fallacy which Malthus fell into. It ignores technological advancement, substitutes, and greater elasticity of demand in the long run. Peak Oil is a numbskull's meth high.

Every prediction of an oil peak has been pushed back decade after decade. If there are viable substitutes for oil, then Peak Oil is meaningless vocal chord aerobics. At least Malthus recognized there is no substitute for food.

Many things factor into price on both the supply and demand side. Looking at rising price alone and saying, "aha, peak oil" is assinine. China and India have quadrupled their demand in the past decade. The real price of oil is now well below its peak. Apparently some people never heard of inflation.

Just to carry the doom sayers being wrong a bit futher in the 1870-1880 period executives at Standard Oil were concerned that the world would run out of oil and wanted to diversify the comapany.(See the Book Titan on John D Rockefeller) John D was not and overrode the concern. The thought was that oil occured only in NW pennsylvania. Then the Lima Oh oil came on line.

'Peak Oil' theory is just one of the key resources cited in "Limits to Growth". In order to understand this theory, one also needs to evaluate the context, 'Limits to Growth' which was premised on the assumption that the world had a finite supply of raw materials, one of which was oil.

On the surface, that would seem to be a fairly common sense idea, however, Limits to Growth did not account for changes in technology and the way that we use raw materials. Like most crystal ball gazing, the predictions in the book turned out to be widely inaccurate.

Limits to Growth and The Population Bomb are notably in the way that they have shaped public opinion for better or worse. These ideas have been thoroughly debated and contested by Julian Simon, a economist. His book "Ultimate Resource 2" is very helpful to delineate between the things that one need worry about and those that one need not.

However, like mercantilism, these ideas never seem to die. Every time, we have an oil shortage, the refrain of 'Peak oil" is once again dusted off.

Just thought you might be interested in where other people are coming from on this idea of Peak Oil. Unless one is aware of the historical context, phrases like "Malthusianism" don't seem to connect.

The US use 25 barrels of oil per year and capita. If this level of consumption were the world average, the world would use almost 2 trillion barrels per decade.

So, the 3.5 trillion barrels is actually not that much. The American way of life doesn't scale, neither can it be sustained forever, at least not powered by oil.

The question is, when we eventually find ourselves having to make the transition to alternatives, if we can look back and say that: "Yes, the gas guzzling American car fleet actually were the best use of that oil."

"The question is, when we eventually find ourselves having to make the transition to alternatives, if we can look back and say that: 'Yes, the gas guzzling American car fleet actually were the best use of that oil.'"

I would say that my muscle car did make best use of that oil...

I would say that my present 14 mpg Astro Van STILL makes the best use of that oil...

When projected crises failed to occur, doomsayers moved their predictions forward by a few years and published again in more visible and prestigious journals:

● In 1989, one expert forecast that world oil production would peak that very year and oil prices would reach $50 a barrel by 1994.10

● In 1995, a respected geologist predicted in World Oil that petroleum production would peak in 1996, and after 1999 major increases in crude oil prices would have dire consequences. He warned that “[m]any of the world’s developed societies may look more like today’s Russia than the U.S.”11

● A 1998 Scientific American article entitled “The End of Cheap Oil” predicted that world oil production would peak in 2002 and warned that “what our society does face, and soon, is the end of the abundant and cheap oil on which all industrial nations depend.”12

Similar admonitions were published in the two most influential scientific journals in the world, Nature and Science. A 1998 article in Science was titled “The Next Oil Crisis Looms Large — and Perhaps Close.”13 A 1999 Nature article was subtitled “[A] permanent decline in global oil production rate is virtually certain to begin within 20 years.”14